Pension issues signal state budget woes

The state Pension Funding Council decided this week to increase investments in the state’s pension plans. It’s a wise decision, but it comes with costs for both taxpayers and public employees. It’s another piece of the looming financial puzzle facing the next state Legislature.

The state unwisely skipped payments to its pension plans for state, local government and school employees during the prosperous pre-recession years. That misstep, plus falling returns on pension fund investments and a longer lifespan for retirees combined to create a $4.4 billion underfunding of more than a half-dozen state pension plans.

To shore up the plans, the council decided to phase-in its funding obligation over the next six years. It’s a balanced approach that gives cities and counties more time to prepare. And by spreading out the increased costs, it prevents a big sudden shock to the state budget and people’s paychecks.

The other option – which we’re glad the council rejected -- was to find about $482 million in the state’s general fund for a one-time catch-up, and boost state workers contribution rates by $408 million. Such a sudden dose of shock therapy could have slowed the state’s economic recovery.

Washington has consistently ranked in the top five nationally for well-funded pension plans before this latest gap was reported. The sky is not falling. If state lawmakers act appropriately, our plans will remain among the nation’s best.

But in the context of competing demands on the state budget, even the Pension Council’s sensible plan may be tough to carry out. There’s a need for a similar catch-up in investment for transportation infrastructure. The Legislature must also meet court orders to fully fund K-12 education and replace state-owned culverts blocking habitat for salmon and steelhead. It all puts the 2015 legislature in crisis mode

And there are other large potential liabilities looming. The state Supreme Court will rule sometime this fall on a lawsuit brought by state employees. The suit argues that workers are owed cost-of-living increases and a share of investment gains before 2008, enticements the Legislature dangled but later rescinded.

State workers are looking for a pay raise this year, too, which would be their first cost-of-living increase in six years. If they get one, it will be offset by the increased employee pension contribution rates.

These are very serious challenges. Gov. Jay Inslee’s Office of Financial Management has directed state agencies to imagine a 15 percent reduction in planning their 2015-2017 budget, and to set priorities on that level of funding. This isn’t an OFM scare tactic. It’s the new lean reality.

If you needed a reason to vote in the Aug. 5 primary, consider this: It’s difficult to envision how state lawmakers will meet all of these obligations. Any resolution will require great leadership and measured compromise, qualities and actions in short supply in recent state Legislatures. Vote accordingly.

This story was originally published August 1, 2014 at 12:00 AM.